Mid-tier spot for Dubai in global realty transparency

Dubai: Dubai and Abu Dhabi have mid-tier rankings among global destinations where real estate laws are rated as being the most transparent and investor-friendly, according to an influential survey by JLL. The cities are ranked 48 and 59 respectively, while Saudi Arabia is at 63rd in the 2016 version of the Global Real Estate Transparency Index from the property consultancy.

The United Kingdom topped the listings of being the most open real estate market, followed by Australia, Canada and the US. (The findings were, of course, done prior to the Brexit vote, though it is unlikely anything would have changed in the post-vote scenario.) Transparency and protection of investor rights matter as annual direct investments into commercial real estate assets soar to $1 trillion (Dh3.67 trillion) worldwide.

“Dubai remains the most transparent real estate market in the Mena region and recorded an improvement in 15 of the 28 areas covered by JLL’s Global Real Estate Transparency Index for 2016,” said Craig Plumb, Head of Research Mena at JLL. “While there are areas for improvement, it is clear that the Dubai Government — and particularly the Dubai Land Department - are ticking more of the boxes in terms of what potential investors are looking for.”

On whether the time may have come for Dubai to update its realty investment regulations, Plumb said: “Rather than a new law, JLL believes investors would be better protected if more accurate information about the performance of real estate and future supply levels were to be made available.

“My understanding is that the existing law provides a good basis for investors to receive compensation from investors who have not delivered projects in line with the schedule or the quality promised in their sales contract.

“The Land Department recognises that one of the major improvements it could initiate would be the creation of an appraisal-based real estate performance index for both commercial and residential property.

“Such indices are common in more mature markets overseas and have been shown to be a significant attraction to investors. It is no coincidence that the 10 most transparent global cities have attracted more than 75 per cent of the total worldwide real estate investment over recent years.

“Investors seek transparency and quality market data on which to make their decisions. The lack of such data increases uncertainty and risk, which results in investors reducing the price they are willing to pay for real estate assets.” The real estate markets of Dubai, Abu Dhabi and India are listed as “semi-transparent”, which suggests there is a “notable disconnect between the existence of regulations and actual enforcement — particularly in land use planning, contracts and building codes”, according to the report.

It must be noted that Abu Dhabi has made good strides in topping up the regulatory structure tied to its property markets. A new law became effective from January, and the emirate also brought in more clarity in how it identifies freehold and long-term leasehold investments.

“The real estate law is just one of the legislative changes being proposed and we would expect further changes to the regulations in Abu Dhabi over coming years,” said Plumb. “One of the greatest current areas of uncertainty relates to the legal status of the new financial free zone [Abu Dhabi Global Market Place] on Al Marayah Island and further clarification on this and other issues are expected.”

Tighter regulation of cross-border investments will be the norm

With the crackdown on tax evasion and money laundering getting more intense, ever more transparent real estate investment flows will become the status quo.

“There are too many examples of opaque and corrupt practices, poor corporate governance and failures in regulatory enforcement that are having serious consequences for society, for business activity and for investment. Investors,” says the new JLL report. “Tenants will bypass countries unable to address these shortcomings, gravitating instead to more transparent markets.”

To avoid this, governments will:

* Stop money laundering through property ownership disclosures.

* Set what is an acceptable level of transparency at even higher as capital allocations to real estate increase. And there is a considerable volume of capital to play for.

* Do more to tackle corruption.

The mounting intolerance of corruption within the world’s growing middle-classes will force the pace of change, with social media helping people to mobilise.

* Bring more transparency through technology.

* Push for more regulatory enforcement.

Greater emphasis will need to be placed on regulatory enforcement, particularly in ‘semi-transparent’ markets, where there is the greatest disconnect between regulations and actual enforcement.